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Credit Constraints and Productive Entrepreneurship in Africa

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  • Baliamoune-Lutz, Mina

    ()
    (University of North Florida)

  • Brixiova, Zuzana

    ()
    (African Development Bank)

  • Ndikumana, Leonce

    ()
    (University of Massachusetts Amherst)

Abstract

Limited access of entrepreneurs to credit constrains the creation and growth of private firms. In Africa, access to credit is particularly limited for small and medium enterprises (SMEs) due to unclear property rights and the lack of assets that can be used as collateral. This paper presents a model where firm creation and growth hinge on matching potential entrepreneurs with productive technologies, while firm growth depends on acquired capital. The shortage of collateral creates a binding credit constraint on borrowing by SMEs and hence private sector growth and employment, even though the banking sectors have ample liquidity, as is the case in many African countries. The model is tested using a sample of 20 African countries over the period 2005-09. The empirical results suggest that policies aimed at easing the binding credit constraints (e.g., the depth of credit information and the strength of legal rights pertaining to collateral and bankruptcy) would stimulate productive entrepreneurship and private sector employment in Africa.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6193.

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Length: 30 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:iza:izadps:dp6193

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Keywords: credit constraints; productive entrepreneurship; employment; policies;

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  1. Stefan Dercon & Luc Christiaensen, 2007. "Consumption risk, technology adoption and poverty traps: evidence from Ethiopia," CSAE Working Paper Series 2007-06, Centre for the Study of African Economies, University of Oxford.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  3. Iyigun, Murat & Rodrik, Dani, 2004. "On the Efficacy of Reforms: Policy Tinkering, Institutional Change and Entrepreneurship," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4399, C.E.P.R. Discussion Papers.
  4. Mina Baliamoune-Lutz, 2007. "Entrepreneurship, Reforms, and Development: Empirical Evidence," ICER Working Papers, ICER - International Centre for Economic Research 38-2007, ICER - International Centre for Economic Research.
  5. Rainer Haselmann & Katharina Pistor & Vikrant Vig, 2010. "How Law Affects Lending," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(2), pages 549-580, February.
  6. Brixiova, Zuzana & Kiyotaki, Nobuhiro, 1997. "Private sector development in transition economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 46(1), pages 241-279, June.
  7. Zuzana Brixiova, 2010. "Unlocking Productive Entrepreneurship In Africa’S Least Developed Countries," William Davidson Institute Working Papers Series wp990, William Davidson Institute at the University of Michigan.
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Cited by:
  1. Brixiova, Zuzana & Kangoye, Thierry, 2013. "Youth Employment in Africa: New Evidence and Policies from Swaziland," IZA Discussion Papers 7467, Institute for the Study of Labor (IZA).
  2. Zuzana Brixiova & Thierry Kangoye, 2013. "Working Paper 175 - Youth Employment in Africa: New Evidence and Policies from Swaziland," Working Paper Series, African Development Bank 472, African Development Bank.

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